disruption – The Business of Social Games and Casino

There has been much debate lately, including on my Facebook page, whether Coin Master from Moon Active is truly disrupting the social casino genre or whether it should be classified in a different category. Much of the debate shows how challenging it is to disrupt a segment or an industry. Coin Master is classic disruption, and understanding the debate helps conceive of additional ways to disrupt.

For those not familiar with Coin Master, it is a mobile game currently generating over $250,000/day currently or an annualized run rate based on Q4 2018 of over $280 million (source: Eilers & Krejcik Gaming, LLC). This would make it the second largest social casino game, behind Slotomania but ahead of well known titles like Doubledown, Heart of Vegas, Big Fish Casino, Hit It Rich!, etc.

Given the success of Coin Master, there are many excellent articles about the gameplay mechanics, monetization, etc., and I will not repeat what others have written better than I could. For those who have not played Coin Master, there is a single, (simple) slot machine and not only do you win coins, you also can attack and raid other villages. You then use your coins to build your village.

Coin Master uses a slot mechanic as part of the core game loop, hence why it may be categorized as a social casino product. As a social casino product, many think it has successfully disrupted a highly profitable but stagnant space. Conversely, as there are RPG and Invest-Express elements, it is also argued that it should not be considered social casino, thus it is not disruptive. The latter argument, however, misses the point of disruption.

Disruption, the Blue Ocean Way

One way to approach disrupting an industry is to take a Blue Ocean methodology. I have written frequently about Blue Ocean strategy and am a strong advocate of this technique. In Blue Ocean strategy, you create a new market space by serving the non-customers of an industry, making the competition irrelevant. You do this by adding-reducing-eliminating-increasing features.

This approach is exactly what Moon Active did with Coin Master. They built a game that served people who were not currently engaged in social casino. They also did not try to compete directly with Playtika or Aristocrat, with the eight figure marketing budgets those companies have, they disrupted the industry by finding untapped demand.

Moon Active’s strategy perfectly followed the Blue Ocean framework of adding-reducing-eliminating-increasing features

Add. Key elements that Moon Active added include raiding and attacking friends and city-building (invest express).
Reduce. Among the elements that Moon Active reduced were number of slot machines, quality (graphics and depth) of slots and purchase options.
Eliminate. Moon Active also eliminated several features that are seen in virtually all other social casino products. These include locked machines, pay-tables, jackpots, tournaments and a reward system.
Increase. Finally, Moon Active increased certain elements. Among the features increased were the value of progression, interaction with your friends and the importance of card collection.

There are many examples of companies in other industries that disrupted their industry with a Blue Ocean approach. Cirque de Soleil is one of the most popular examples, as the circus business was stagnant until Cirque de Soleil reinvented the industry by creating a new type of product that appealed to different customers. Ringling Brothers did not consider Cirque a competitor and most argued that it was a different, not disrupting the circus industry. Amazon did the same to retail when it started selling books online. Barnes & Noble and Borders did not consider it disruptive, and retailers in other industries certainly did not, as their customers were not looking to buy books (or shoes or electronics) online. When Wikipedia launched, Encyclopedia Britannica did not consider it a competitor. Now you probably would use Wikipedia to remember what Britannica was.

In all of these Blue Ocean cases, many argued the disruptive competitor was not a competitor or in the same category because it was so disruptive. That is the case with Coin Master and those who are arguing it is not disrupting the social casino space are largely proving that it is true disruption.

Coin Master is also an example of Classic Disruption theory

If you prefer red oceans and have not succumbed to Blue Ocean strategy, Coin Master is also a textbook example of classic disruption theory. Clay Christensen is considered the father of understanding innovation and disruption, with his book The Innovator’s Dilemma required reading at every tech (and most non-tech) company. In The Innovator’s Dilemma, incumbent businesses focus on improving their product to better meet customers’ needs but eventually lose their market to disruptors who appeal to less sophisticated customers initially but end up providing a more appealing, broader solution.

The incumbent understands its customers and is continually improving its product to suit better these customers. Christensen stresses, however, that it leaves the incumbent open to disruption. By focusing on existing customers, new entrants can create a product, often inexpensively, that appeals to a different set of customers (there are parallels with Blue Ocean). Institutionally, the incumbents are forced to resist appealing to these customers out of concern of alienating existing players.

An example would be the growth of the personal computer business. The PC initially did not compete with mainframes and mini-computers. Incumbents did not want to build these machines because they knew their customers needed a powerful machine and would not be interested in the “silly” PC. That arrogance allowed small companies (like Dell and Compaq) to build their business. Incumbents did not consider PC companies’ competitors because it did not fit the framework of what a computer does. Eventually their products became so good that the customer of the incumbents shifted and thus the PC disrupted the computer business.

In the Coin Master case, existing social casino companies know players well and are constantly building better slots and apps to meet these customers’ expectations. That is why you are seeing average revenue per user increase linearly, the companies are getting better at delivering value to existing social casino customers. Moon Active, however, created a slot machine with relatively low production value that does not compete for the player who wants an authentic casino slots experience. Coin Master appeals to a broad market while still leveraging a slot mechanic.

Just as with the Blue Ocean analysis, most of the industries Christensen studies that were disrupted in this manner did not consider the product or company creating the disruption a competitor, at least initially. Blackberry did not consider the iPhone a competitor, Blockbuster did not consider Netflix a competitor, GM did not consider Honda a competitor and server hardware companies never thought AWS would impact their business.

Why disruption matters

Rather than being an academic argument, it is important to realize that Moon Active is actually disrupting the social casino space. First, while disruptive products initially do not impact incumbents, in times they do shift the industry and create new winners and losers. While Digital Equipment, Data General, Olivetti, et. al., thrived for years they are now afterthoughts. Second, the disruptor is blazing a path for other companies. Coin Master will go from a Blue Ocean to a Red Ocean product, and there will be other successes in the new Red Ocean. Most importantly, Coin Master shows how to disrupt the social casino space. It is not about changing the type of jackpots or the orientation of the screen, it is about creating a social casino product that makes the competition irrelevant.

Key takeaways

Coin Master has taken the social casino space by storm, generating more than $250,000/day, by disrupting the space and deviating from how other social casino products compete.
Coin Master exemplifies how to disrupt an industry, appealing to non-customers of the industry by adding new features, increasing others while eliminating some elements and reducing the emphasis on other features.
Coin Master is a textbook example of how to disrupt and succeed in the social casino space, by creating a product that makes the competition irrelevant.

Earlier this year, I wrote how using analytics to gain deep customer insight could inhibit innovation, based on Clayton Christensen’s Innovator’s Dilemma. I wanted to dive deeper into the Innovator’s Dilemma, as it is important to all tech companies, from those trying to grow to those trying to disrupt established industries. I will also tie everything together by showing how the free-to-play model disrupted the electronic game industry, destroying companies like Acclaim and Midway and creating billion-dollar companies like King.com and Kabam.

What is the innovator’s dilemma

At its core, the innovator’s dilemma is the apparent contradiction between knowing your customers intimately and optimizing your product for them, versus the fact that innovation will be driven by a different group of customers. Additionally, if you are a successful company the problem is magnified, as the new market may initially be much smaller than your current market and thus not warrant your attention. Finally, as Christensen writes, “blindly following the maxim that good managers should keep close to their customers can sometimes be a fatal mistake.”

Christensen cites many examples in the book, but one of the strongest is how the disc drive industry evolved. Some great companies, IBM, Control Data, Seagate, made all the right textbook moves by innovating based on what their customers wanted and then found themselves outflanked by other companies. In fact, the established 14-inch drive manufacturers were held captive by customers. Mainframe computer manufacturers did not need or want an 8-inch drive. They explicitly did not want it: They wanted drives with increased capacity at a lower cost per megabyte. So the drive manufacturers created products that their customers were demanding, missed the market for PC drives and then the manufacturers of PC drives went upstream and took their core market. This is a cycle that has been repeated in the drive industry buy also in multiple high-tech and low-tech industries. Continue reading “Understanding the innovator’s dilemma”

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